McKinsey & Co.: Five Pillars of Growth

The McKinsey Global Institute has a new briefing paper entitled “The US Economy: An Agenda for Inclusive Growth.” The paper seeks ways to help America “regain its dynamism and restore the sense that everyone is advancing together.” The paper lists “five areas where targeted investment and policy action could create substantial economic impact.” This impact would include a rise in “GDP growth to 3 or even 3.5 percent.” These include:

Digitization: “The US economy is rapidly digitizing, but its progress is highly uneven. Focusing on the gap between lagging sectors and those on the digital frontier is a key part of the productivity puzzle. Government can play a role by promoting digital investment, digitizing public services and procurement, clarifying regulatory standards to encourage digital innovation, and taking a nimble and experimental regulatory approach to keep pace with technological change.”

Globalization and trade: “The current debate around trade misses the point that globalization is becoming more digital—a shift that plays to US strengths. Today, less than 1 percent of US firms sell abroad. There are ways to expand participation by helping small businesses export on global e-commerce platforms and playing a matchmaking role to connect individual cities and smaller companies with foreign investors. But it is also time to confront the needs of communities that have experienced trade shocks. The workers who are caught up in industry transitions need more than retraining; their communities need reinvestment.”

America’s cities: “Eighty percent of the US population lives in cities or the surrounding metro areas. But investment in urban transport infrastructure has not kept up with their needs, creating congestion that harms both productivity and the quality of life. A shortage of affordable housing and commercial space has worsened the squeeze on households and small businesses. Addressing urban issues would improve mobility, create new investment opportunities, and benefit companies. The overall economy would stand to gain, since cities are the engines of productivity.”

Skills: “The United States needs to build a more dynamic and efficient labor market. Colleges and universities have to adapt and address the growing cost burdens. Additionally, we could make occupational licenses more portable, create more short-term training and credential pathways, expand “earn while you learn” apprenticeships, and make better use of online talent platforms to improve matching and design quicker, more effective education pathways.”

A resource revolution: “Competition among fuel sources and efficiency improvements are combining to produce an unheralded energy revolution. Technology innovations are driving increased efficiency both in demand and supply, and renewables are becoming more price competitive. America’s widely diversified energy portfolio has hugely benefited the economy. The most important thing the ongoing resource revolution needs is room to play out. Technology is moving quickly, and a responsive regulatory approach would speed the allocation of capital to the most promising opportunities. The primary policy agenda here involves reducing friction and market distortions.”